John McDonnell and George Osborne: Two faces of Gordon Brown

by Jonathan Todd

John McDonnell is bringing to mind the Gordon Brown of the 1992 parliament, while George Osborne is coming to appear the Brown of the 2005 parliament. Where Brown had neo-endogenous growth theory, McDonnell has an entrepreneurial state; both have public investment at their core. Where the later Brown had 10p tax, Osborne has tax credits; too clever by half missteps by Stalins transfiguring into Mr Beans.

“Business investment is falling,” McDonnell noted in a speech last month. “Exports are falling. The productivity gap between Britain and the rest of the G7 is the widest it has been for a generation. Without productivity growth, we cannot hope, over the long term, to improve living standards for most people.”

It is a powerful critique, grounded not in the overthrow of capitalism but in making it work more efficiently. Notwithstanding their divergent accents, you can close your eyes and imagine Brown, as shadow chancellor, castigating the Major government. Or more recently, Ed Balls attacking the Cameron administration.

The fiscal rule that McDonnell espoused in his speech might be interpreted as a crisper version of that which Balls took Labour into the last election with. The practical consequences of the McDonnell and Balls fiscal rules may be little different but McDonnell more explicitly backs capital spending.

“We believe,” McDonnell declared, “that governments should not need to borrow to fund their day-to-day spending.” This hawkish position on current spending contrasts with a more dovish approach to capital spending. “Alongside this, we recognise the need for investment which raises the growth rate of our economy by increasing productivity as well as stimulating demand in the short term.”

The conflation of current and capital spending has unhelpfully mudded the fiscal debate. It is sound economics to more sharply distinguish them. Whether it is politically effective is more uncertain. In pursuing the economically sensible strategy of bearing down on current spending, while privileging the capital spending that does most to drive growth, McDonnell leaves enough room for Osborne to deride him as profligate.

The returns, however, to allocating blame to Labour “over spending” must be diminishing for Osborne. The longer he is in office, the more he is required to stand on his own record. “The question is whether his plan makes sense. The answer is no,” Martin Wolf lamented not long ago in the Financial Times.

“If,” Wolf went on, “the government is in a position to invest by borrowing at low real interest rates, as now, it makes sense to do so.” The chief economics commentator at the Financial Times sounds, therefore, more like McDonnell than Osborne. We might wonder how long this can persist before Labour recovers a lead on the economy. Perhaps till memories fade of McDonnell throwing Mao Zedong’s Little Red Book around. Or suspicions subside that he wants to abolish McDonalds.

In other words, no matter how sensible McDonnell’s ideas for the better working of capitalism, the perception may be hard baked that he wants to junk it. He doesn’t help himself in this regard by making speeches that push for Trident to scrapped, while not mentioning the EU referendum. The referendum is much more economically significant than Trident and the referendum is also the issue to major on if McDonnell seeks Labour unity.

It is welcome that Brown is soon to make a speech on the referendum. It was less so when he used to speak of “no more boom and bust”, displaying a bizarre complacency about the inherently cyclical nature of market economies. As did Balls with his flat lining gestures at PMQs. Booms and busts follow one another as surely as night and day.

The question was never whether growth would recover under Osborne but whether he’d do enough to “fix the roof while the sun is shining”. In spite of his rhetoric, Osborne’s aversion to investment means structural weaknesses are uncorrected. Now the next recession draws nearer, as it always does, with little sense that we are more resilient than the last time around.

The perception that Labour under Corbyn are unelectable may have left Osborne with a belief that none of this, ultimately, politically matters. But Corbyn polling ahead of Osborne on best PM may be a sign that Osborne’s politically cynical and economically damaging decision-making may, finally, be rebounding on him.

As for alternatives to Osborne as next Tory leader, Boris Johnson’s stock will fall if his Brexit gamble doesn’t pay off, Theresa May might lack a popular touch, and none of the new pretenders (Stephen Crabb, Nicky Morgan, etc) really convince. There is a building sense of ‘apres moi le deluge’ about Cameron.

Corbyn won’t lead his party forever either. Whoever the next Labour leader is, and whenever they emerge, they’ll be assisted by Labour now uniting around the issues that we can unite around – McDonnell’s hawkish approach to current spending and dovish stance on capital spending; Corbyn’s call for remain and reform on the EU. Rather than bloodletting on issues like Trident that are internally divisive.

McDonnell’s economics may have a Brown in the 1992 parliament vibe but this needs to be aligned with the same political discipline required to retain party unity and ruthless hunger to return to power that Labour had in the same parliament. Given the mounting problems facing Cameron and Osborne, the returns to this should not be underestimated.

Jonathan Todd is Deputy Editor of Labour Uncut

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6 Responses to “John McDonnell and George Osborne: Two faces of Gordon Brown”

  1. Anne says:

    I find it strange when Politicans who have no background in either economics or banking are appointed Chancellor- in charge of the countries finances – I would think that a lot of their speeches are written by their advisors.
    I agree that Corbyn appears to be fixated by Tridant at the expense of other issues – he appears to have been frog marched to make a statement about the EU – what he actually said was relevant but, because of statements he has made in the past, it was difficult to believe him.

  2. So Jonathan, I’m a bit lost to the message in your piece which is undoubtedly down to me rather than you. Are you saying that the PLP should stop all this undermining and talk of coups and unite behind the elected leadership?

  3. Tafia says:

    I find it strange when Politicans who have no background in either economics or banking are appointed Chancellor- in charge of the countries finances

    I don’t. By the same measure how could you be SoS for Defence if you haven’t been a high ranking officer in the Armed Forces? Or Prime Minister if you haven’t been the CEO of a major company? Or SoS for Health if you’ve not even done a first aid course?

    They aren’t there to have a knowledge of that stuff – they are there to give political direction to the Treasury so that it adjusts it’s policies to fit the political will of the government of the day.

    The treasury (and indeed all arms and departments of government) don’t actually need any politicians at all to function perfectly adequately. The politicians are merely there to make sure that they are going in line with their relevant political dogma and to hold them to some sort of scrutiny.

    It’s the two D’s – Delegation and Direction.

  4. Anne says:

    Believe you me the vast majority of nhs workers find politicians much more of a hindrance than a help in running the health service and I would think this also applies to education as well.

  5. Hi Jonathan,

    Interesting to read you describe John McDonnell as having a hawkish approach on current spending and a dovish stance on capital spending.

    John McDonnell has said he would balance the day-to-day spending, and that deficits should only be temporary. But do you really believe it? I’m afraid I don’t.

    The economic policies of oppositions of any party are notoriously slippery. They can always claim that their policies would lead to growth which would make cuts unnecessary, but the electorate are right to be sceptical.

    In order to convince the electorate, they need to do more than make general assertions of prudence and competence, they need to show they mean it.

    It’s not just McDonnell’s previous public statements about overthrowing of capitalism, and about his primary influences being Marx, Lenin and Trotsky. It’s that I can’t see any evidence that he’s put those sentiments behind him. He continues to speak at Momentum Anti-Austerity meetings. He continues to employ people from the far left.

    If he were serious about putting credibility behind the fiscal rule he has adopted, he’d acknowledge that he’s advocating something similar to Ed Miliband and Ed Balls. He’d also have to give some specifics about how he’d rein in public spending.

    He’d have to respond to Danny Blanchflower’s comment of January that, “If you raise corporate taxes too high, companies may move to Ireland or elsewhere”. If that means that Corbyn’s original proposals of getting a lot more money out of UK companies wouldn’t work, he needs to be honest about that.

    But if he did that, wouldn’t he just end up with the same policies he and his supporters condemned as Tory-lite. And if he and Corbyn did that, what would their supporters do to them?

    None of us can know for sure what MacDonnell will do over the next few years. But, until he shows otherwise, I’m assuming he hasn’t changed from a year ago. That these moderate-sounding words are to allow time for the Corbyn leadership to further establish itself. To allow their supporters to strengthen their grip on the Labour party, and to continue a campaign that will end with moderate Labour MPs either shifting their position far to the left, or being unable to contest winnable seats after the boundary review.

    You’re a reasonable kind of guy, Jonathan. Do you have any evidence that I’m wrong?

  6. “Hawkish position on current spending contrasts with a more dovish approach to capital spending.”

    But does anyone understand just how the two are distinguished? If we build a hospital or a school that capital spending, right? But what are the chances that the value of the hospital or the school could actually be realised if it were sold? The same argument would apply to a bridge or a road.

    And what about the doctors and teachers who worked in those places? Is their salary capital or current spending? And what about the value to the country of those students who are educated and whose lives are saved? Do we count the cost of saving the life of a high earning high tax paying 40 year old as capital spending, as it brings a return, but not the life of a baby or a pensioner?

    So all this is fraught with difficulties and contradictions. Government isn’t like a business which can reasonably make a difference between the two.

    There’s good spending and there’s bad spending. That’s much better way to look at the problem.

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